Rite Aid to launch OTC site with Drugstore.com

BELLEVUE, Wash. Drugstore.com last month announced a restructured two-year strategic relationship that includes the launch of a Rite Aid online store for over-the-counter products and expands on the two companies’ successful long-term relationship, which was to expire June 2009.—Rite Aid and

“Having our own online OTC store and being able to market directly to those customers is an important next step in our digital strategy,” said Robert Easley, Rite Aid chief operating officer. While Rite Aid has declined to share details on that digital strategy, it appears that vice president of business development Curt Avallone—a former general manager at CVS.com who Rite Aid hired in March—will help lead the execution of that digital strategy, as well as several pharmacy initiatives. Avallone reports to Easley and Mark de Bruin, Rite Aid executive vice president of pharmacy.

Rite Aid plans to leverage its dot-com brand awareness looking forward; however, the company has not yet created a specific cadre of dot-com buyers, such as Walgreens.com or CVS.com have done. According to Avallone, Rite Aid will decide which products are carried on their online e-commerce site, but both Rite Aid and Drugstore.com will be buying product for the Web site based upon lowest costs. The site will initially carry approximately 2,000 items, Avallone said. In addition, all Rite Aid private-label products will be bought through Rite Aid.

“For Rite Aid, they will have a best-in-class online OTC offering,” Yukio Morkumbo, Drugstore.com general counsel and vice president of strategy, told analysts. “They are relying on us to provide them a competitive response to the online offerings of their competitors,” he said. “They’re leveraging our online know-how…and fulfillment [capabilities].… Most importantly it gives Rite Aid control of their customer’s pharmacy experience online and offline.”

The Rite Aid dot-com represents a new, potentially lucrative, revenue stream for Rite Aid. “In terms of how large this could be…if you think of [Rite Aid] having 40 million, 50 million customers and rising, [there is a lot of potential here],” said Dawn Lepore, chief executive officer and chairman of Drugstore.com. “Could you see a $100-million [business] over several years if they aggressively market it? Yes.” Rite Aid has data suggesting that the online OTC customer is “very valuable” and “will drive incremental” sales to Rite Aid, Lepore said.

“Rite Aid will develop marketing programs to drive traffic to the new site and, given the differing demographics, we expect these sales to be incremental to Drugstore.com,” Lepore stated. In addition, the new deal affords Drugstore.com the ability to market its Beauty.com and vision offerings to Rite Aid customers. “They will also have access to some of our promotions,” she said. Rite Aid’s online OTC store is expected to launch this year.

As part of the new agreement, the LPU rights (prescriptions ordered online for pick up at a Rite Aid store) will be transferred to Rite Aid. In return, Drugstore.com will receive approximately $10 million in 10 monthly installments from Rite Aid. Going forward, Drugstore.com will receive marketing services revenue for marketing Rite Aid’s LPU offering on Drugstore.com.